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Impacts of the German Support for Renewable Energy on Electricity Prices, Emissions and Profits: An Analysis Based on a European Electricity Market Model

Thure Traber () and Claudia Kemfert ()

No 712, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: Effects of renewable support legislation on electricity prices have been analyzed with a plethora of models. However, these models neglect at least one of the following aspects which we take into account in our analysis: oligopolistic market behavior of dominant firms, emission trading, restricted electricity trade and production capacities, and effects on producer prices and firm profits. In this paper we use the electricity market model EMELIE and decompose the impact of the feed-in of renewable energy in Germany into two effects: a substitution effect triggered by the displacement of conventional sources and a permit price effect induced via the ETS. We find that the renewable support increases consumer prices slightly by 0.1 Eurocent/kWh, while the producer price decreases by 0.4 Eurocent/kWh. In addition, emissions from electricity generation in Germany are reduced by 32 Mt CO2, but are hardly altered if we consider the European electricity sector in total. Finally, the profits of most firms are significantly reduced by the support policy unless the firms combine relatively carbon intensive production equipment with a loose connection to the German grid.

Pages: II; 17 p.
Date: 2007
New Economics Papers: this item is included in nep-eec, nep-ene and nep-env
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